1985 (8) TMI 111 - AT - Income Tax

Summary

Issues Involved:
1. Recalculation of deductions under sections 80HH and 80J.
2. Inclusion of import entitlements, export house premia, and drawbacks in business income for deduction purposes.
3. Jurisdiction of the Commissioner to invoke section 263.

Issue-Wise Detailed Analysis:

1. Recalculation of deductions under sections 80HH and 80J:
The Commissioner directed the Income Tax Officer (ITO) to recompute the deductions under sections 80HH and 80J after excluding the premia on import entitlements, export house premia, and drawbacks. The assessee argued that these receipts are part of the business activities and should be included in the deductions. However, the Tribunal upheld the Commissioner's direction, stating that the profits and gains should be directly derived from the industrial undertaking, not indirectly.

2. Inclusion of import entitlements, export house premia, and drawbacks in business income for deduction purposes:
The assessee contended that import entitlements, export house premia, and drawbacks are integral to their business activities and should be included in the deductions under sections 80HH and 80J. The Tribunal, referencing the Supreme Court's interpretation of "derived from" in Cambay Electric Supply Industrial Co. Ltd. v. CIT and other precedents, concluded that these receipts are not directly derived from the industrial undertaking's primary business activity. The Tribunal noted that the profits from the sale of import entitlements, export house premia, and drawbacks are indirect benefits and not directly attributable to the business of exporting sea foods.

3. Jurisdiction of the Commissioner to invoke section 263:
The Commissioner invoked section 263, considering the ITO's order allowing deductions under sections 80HH and 80J as erroneous and prejudicial to the interests of the revenue. The Tribunal upheld the Commissioner's jurisdiction, agreeing that the ITO's order was indeed erroneous as it included indirect receipts in the deductions. However, regarding the drawbacks, the Tribunal noted that the full facts were not available and directed the ITO to make proper enquiries and decide the matter afresh.

Conclusion:
The Tribunal upheld the Commissioner's order to recompute the deductions under sections 80HH and 80J, excluding import entitlements and export house premia, as these are not directly derived from the industrial undertaking's business. The Tribunal modified the Commissioner's order regarding drawbacks, directing the ITO to conduct further enquiries. The appeal was thus allowed in part.